What Can We Learn From Expert Gamblers?: Dylan Evans at TEDxWestlake

Summary

This script delves into the concept of 'risk intelligence,' exploring how expert gamblers utilize this skill to navigate uncertainty and make informed decisions. It contrasts problem and leisure gamblers with experts who profit from their calculated approach. The speaker introduces a test to measure one's risk intelligence quotient (RQ) and discusses three methods for decision-making based on probabilities, emphasizing the importance of assessing and acting on uncertain information.

Takeaways

• 🎯 The concept of 'risk intelligence' is introduced as a special kind of intelligence for dealing with risk and uncertainty.
• 🔍 The speaker differentiates between problem gamblers and expert gamblers, with the latter using skill and expertise to outperform novices and earn profits.
• 🃏 Expert gamblers are categorized into three tribes: poker players, blackjack players, and sports betters, each requiring distinct skill sets.
• 👥 Poker players are described as amateur psychologists, skilled at reading people and bluffing, while blackjack players are system players with a focus on strategy.
• 📊 Sports betters are divided into computerized and intuitive, with the latter relying on their ability to process information mentally and make probability estimates.
• 📈 The 'risk intelligence' of expert gamblers is demonstrated through their unconscious ability to model complex linear equations to predict outcomes.
• 📝 An online test is available to measure one's risk intelligence quotient (RQ), which assesses the ability to judge one's own certainty or uncertainty.
• 🧠 The test for risk intelligence does not measure knowledge but self-knowledge and the capacity to gauge one's own level of confidence accurately.
• 🎲 Three methods for making decisions using probabilities are suggested: setting thresholds, bet sizing, and considering expected value.
• 💡 The importance of having the right amount of confidence in each situation is highlighted, as overconfidence and underconfidence can be detrimental.
• 🎰 Expert gamblers are portrayed as having a long-term perspective on decision-making, considering the average outcome over an infinite number of bets.

Q & A

What is the concept of 'risk intelligence' as mentioned in the script?

Risk intelligence refers to a special kind of intelligence for thinking about risk and uncertainty, which the speaker believes can be observed and learned from successful gamblers.

Why does the speaker believe studying expert gamblers can help us make better decisions?

The speaker believes that expert gamblers possess a unique way of thinking about risk and uncertainty that can be applied to decision-making in various aspects of life.

What is the difference between expert gamblers, problem gamblers, and leisure gamblers according to the script?

Expert gamblers are those who can earn a profit from gambling due to their skill and expertise. Problem gamblers are those who bet more than they can afford to lose, while leisure gamblers bet and lose relatively small amounts for the thrill of the game.

What are the three distinct tribes of expert gamblers mentioned in the script?

The three tribes are poker players, who are the rock stars of the gambling world; the more private and austere blackjack players; and the sports betters who gamble on a variety of sports.

How do poker players and blackjack players differ in their approach to gambling according to the script?

Poker players are described as skilled amateur psychologists, good at reading people and bluffing, while blackjack players are more focused on systems and do not require as much psychological awareness.

What does the script suggest about the skill set required for sports betters?

Sports betters can be divided into computerized sports betters who need strong programming skills, and old-fashioned intuitive sports betters who rely on their mental calculations and intuition.

What was the main finding of the study conducted by Steven cesie and Jeffrey Leica at Brandy Wine Raceway?

They found that the expert gamblers were able to unconsciously model their predictions of a horse's chance of winning as a complex linear equation with seven variables related to the horse's past performance.

What is the purpose of the online test created by the speaker, and how does it work?

The online test measures a person's risk intelligence quotient (RQ) by asking them to rate the likelihood of 50 statements as true or false, expressing their certainty or uncertainty as a percentage.

How does the speaker define 'overconfidence' and 'underconfidence' in the context of the risk intelligence test?

Overconfidence is when a person is too certain about their knowledge or predictions, while underconfidence is when they are not confident enough. The test aims to find a balance, where confidence matches the actual knowledge or situation.

What are the three ways the speaker suggests using probabilities when making decisions?

The three ways are setting a threshold for decision-making, bet sizing which involves betting proportional to confidence, and using the concept of expected value to make decisions over a longer time horizon.

What is the key difference between expert gamblers and leisure or problem gamblers in terms of their approach to betting?

Expert gamblers focus on the long-term expected value and make decisions based on a rational pursuit of profit, whereas leisure and problem gamblers are more driven by the thrill of the game or betting beyond their means.

Outlines

00:00

🎰 Understanding Expert Gamblers' Mindset

This paragraph introduces the concept of 'risk intelligence' and delves into the psychology of expert gamblers. The speaker has interviewed successful gamblers to uncover a unique intelligence for assessing risk and uncertainty. While psychologists often focus on problem gamblers, the speaker argues that expert gamblers possess a skill set that allows them to make profitable decisions in games like poker, blackjack, and sports betting. These experts are distinguished from both problem and leisure gamblers, with the latter two losing money over time due to betting beyond their means or for the thrill of the game. In contrast, expert gamblers are motivated by a rational pursuit of profit and intellectual satisfaction. The world of expert gamblers is divided into three tribes: poker players, blackjack players, and sports betters, each requiring different skills such as psychological insight, systematic strategy, and programming or intuitive analysis.

05:00

🏇 Insights from Expert Horse Race Gamblers

The second paragraph discusses a study conducted by psychologists Steven cesie and Jeffrey Leica at Brandy Wine Raceway, where they interviewed 30 male racetrack patrons. These men were not professional gamblers but were deeply passionate about horse racing. The study revealed two distinct groups among the patrons: 14 who were adept at predicting final odds and 16 who were average. Over four years, cesie and Leica developed a model to understand how these expert gamblers forecasted a horse's chances of winning, identifying it as a complex linear equation involving seven variables related to the horse's past performance. Remarkably, these gamblers did this unconsciously, without formal knowledge of statistical modeling, demonstrating an innate 'risk intelligence' that allowed them to estimate probabilities accurately.

10:02

📊 Measuring Risk Intelligence with an Online Test

This paragraph introduces an online test designed to measure an individual's 'risk intelligence quotient' (RQ), which is analogous to the intelligence quotient (IQ) but specifically assesses one's ability to handle uncertainty. The test consists of 50 statements that participants must evaluate in terms of their likelihood of being true, expressed as a percentage. The test does not measure knowledge but rather self-awareness and the ability to judge one's own certainty or uncertainty. It is noted that overconfidence and underconfidence are both penalized, with the ideal being a balanced confidence level based on the information at hand. The test is said to be challenging even for highly intelligent individuals, as it rewards accurate self-assessment rather than the accumulation of knowledge.

15:02

🎯 Applying Risk Intelligence to Decision Making

The final paragraph explores the practical application of risk intelligence in decision-making. It addresses the common challenge of making decisions based on uncertain information, such as probabilities, which is not typically taught. The speaker suggests three methods to incorporate probabilities into decision-making: setting a personal threshold for action, adjusting bet sizes according to confidence levels, and considering the expected value of an outcome over an infinite number of repetitions. The concept of expected value is highlighted as particularly important for expert gamblers, who consider the long-term average outcomes rather than single instances. The paragraph concludes with the idea that expert gamblers exhibit a 'coolness' in their decision-making, knowing when to bet and when to refrain, which is a key distinction from less experienced gamblers. It also acknowledges the inherent uncertainty and randomness in gambling, quoting Nick pulovski to emphasize that even with excellent risk intelligence, there are no guarantees in life.

Keywords

💡Risk Intelligence

Risk intelligence refers to the ability to assess and make decisions in situations involving uncertainty and potential outcomes. In the video, it is suggested as a special kind of intelligence that expert gamblers possess, allowing them to think about risk in a nuanced way. The concept is explored through the lens of different types of gamblers, with the speaker arguing that studying expert gamblers can teach us about making better decisions in the face of uncertainty.

💡Expert Gamblers

Expert gamblers are individuals who have honed their skills in games of chance to the point where they can consistently outperform novices and earn profits from gambling. The video emphasizes that not all gambling is about luck, and that expert gamblers, particularly in games like poker and blackjack, demonstrate a high level of skill and expertise that sets them apart from problem or leisure gamblers.

💡Problem Gamblers

Problem gamblers are individuals who bet more than they can afford to lose, often leading to financial and personal issues. The video contrasts problem gamblers with expert gamblers, highlighting that while both may lose money over the long term, problem gamblers do so in a manner that is unsustainable and potentially harmful, unlike the calculated approach of expert gamblers.

💡Leisure Gamblers

Leisure gamblers are those who engage in gambling for the enjoyment and thrill of the game, rather than as a means to earn a profit. The video describes leisure gamblers as betting and losing relatively small amounts of money, with the main appeal being the excitement of winning, as opposed to the profit-focused mindset of expert gamblers.

💡Poker Players

Poker players are highlighted as one of the three 'tribes' of expert gamblers in the video. They are characterized as skilled amateur psychologists, adept at reading people and bluffing, which are key skills in the game of poker. The video distinguishes poker players as the 'rock stars' of the gambling world, earning fame and fortune through tournament play.

💡Blackjack Players

Blackjack players are another tribe of expert gamblers, described as dedicated, determined, and focused system players. Unlike poker players, they are portrayed as not requiring as much psychological awareness, instead relying on strategic and systematic approaches to the game.

💡Sports Bettors

Sports bettors are the third tribe of expert gamblers mentioned in the video. They are characterized by their ability to gamble on a wide range of sports, from horse racing to football. The video further divides sports bettors into computerized and old-fashioned intuitive subgroups, each requiring distinct skill sets.

💡Risk Intelligence Quotient (RQ)

The Risk Intelligence Quotient (RQ) is a measure of an individual's ability to assess risk and make decisions under uncertainty. The video introduces an online test to determine one's RQ, which is analogous to an IQ test but specifically for risk intelligence. The test measures not just knowledge, but self-knowledge and the ability to judge one's own certainty or uncertainty.

💡Overconfidence

Overconfidence is portrayed in the video as a pitfall that can negatively affect decision-making, particularly when it comes to assessing risk and uncertainty. The RQ test is said to punish overconfidence, as it rewards accurate self-assessment of one's knowledge and certainty, rather than the mere possession of factual knowledge.

💡Expected Value

Expected value is an abstract concept used in decision-making that refers to the average amount one would win or lose if a particular bet were made an infinite number of times. The video explains that expert gamblers often base their decisions on expected value, thinking in terms of long-term averages rather than individual outcomes, which contributes to their cool and calculated approach to gambling.

💡Uncertainty

Uncertainty is a central theme in the video, as it explores how expert gamblers deal with situations that involve an element of unpredictability. The video discusses how people are often not taught to make decisions based on uncertain information, and it provides strategies for incorporating probabilities into decision-making processes.

Highlights

The concept of 'risk intelligence' is introduced as a special kind of intelligence for thinking about risk and uncertainty.

Psychologists often focus on problem gamblers, neglecting the expertise of successful gamblers.

Gambling is not solely about luck; games like poker, blackjack, and sports betting allow for skill and expertise.

Expert gamblers are distinguished by their ability to earn a profit from gambling, unlike problem or leisure gamblers.

Expert gamblers are not motivated by the thrill of winning but by a cold rational pursuit of profit and intellectual satisfaction.

The world of expert gamblers is divided into three tribes: poker players, blackjack players, and sports betters, each requiring distinct skills.

Poker players are amateur psychologists, skilled at reading people and bluffing.

Blackjack players are systems players with a focus and determination, less reliant on psychological awareness.

Sports betters are divided into computerized and intuitive betters, with the latter being of particular interest.

A study by psychologists Steven cesie and Jeffrey Leica on horse racing patrons revealed two distinct groups of betters.

Expert gamblers subconsciously use a complex linear equation to predict horse race outcomes, despite no formal knowledge of statistics.

The ability to estimate probabilities from gathered information is termed 'risk intelligence'.

An online test is available to measure one's risk intelligence quotient (RQ), reflecting self-knowledge and judgment of certainty or uncertainty.

The test of risk intelligence does not measure knowledge but the ability to judge one's own certainty or uncertainty.

Overconfidence and underconfidence are both punished in the risk intelligence test, emphasizing the importance of accurate self-assessment.

Three methods for using probabilities in decision-making are described: setting thresholds, bet sizing, and using expected value.

Expected value allows expert gamblers to view decisions over a longer time horizon, fostering a coolness in their decision-making.

Expert gamblers distinguish themselves by knowing when not to bet, unlike leisure or problem gamblers.

The importance of accepting the irreducibility of chance and making peace with it is emphasized for better decision-making.

Transcripts

I've spent the last few years

interviewing some of the most successful

gamblers in the world and it's not just

because I like spending my time in

casinos I've got a hunch that there's a

special kind of intelligence for

thinking about risk and uncertainty

something I call risk

intelligence

so if psychologists study gamblers at

all they tend to focus exclusively on

problem gamblers but that's like

studying obesity and neglecting oat

Cuisine or studying alcoholism and

neglecting Fine

Wines not all gamblers are

fools some of them are experts and I

think we can all learn a lot about how

to make better decisions by studying the

way these expert gamblers

think the very

idea of an expert Gambler seems odd to

some

people surely gambling is just a matter

of luck they say but that's not true

sure slot machines and roulette are

games of pure chance so there's no room

for expertise

there but poker Blackjack and all kinds

of sports betting offer the opportunity

to exercise skill and

expertise expert gamblers outperform

novices in these games and their

expertise can make them very

rich and it's this ability to earn money

to earn a profit from gambling that sets

the expert gamblers apart from the

problem gamblers and the Leisure

gamblers the problem gamblers and the

Leisure gamblers both lose money over

the long term the main difference is

that the Le the problem gamblers bet

more than they can afford to lose while

the Leisure gamblers bet and lose

relatively small amounts but it's not

really the money these people are

playing for in the end it's more the

thrill of winning the adrenaline rush of

the

game with the expert gamblers things are

very different for them it really

doesn't thrill them that much to win

think of it if every time you pulled the

arm of a slot machine it paid out soon

it wouldn't be fun it would be

work and for these gamblers these EX

expert

gamblers it is more of a cold rational

pursuit of profit that motivates them

that and a certain degree of

intellectual

satisfaction so as I learned more about

the world of the expert Gambler I

discovered that it was comprised of

three distinct tribes first you have

the poker players the rock stars of the

gambling world who earn win fame and

fortune on the tournament

circuit then you have the poker

players more private

austere somewhat dismissive of the

glitzy celebrity of the poker players

and finally you have the sports betters

who gamble on everything from golf and

horse racing to football and college

basketball and each of these tribes

exhibits and requires a distinct skill

set the poker players are skilled

amateur psychologists skilled at reading

people at telling when people are

bluffing and at bluffing

themselves the blackjack players are

dedicated determined focused systems

players without much need for

psychological

awareness and the sports betters can be

further subdivided into two distinct

subgroups on the one hand there are the

computerized Sports betters and

obviously they what they need most of

all is the ability to program and on the

other hand you have the what I call the

old-fashioned intuitive Sports betters

the people who do it all in their heads

and those are the people that most

interest me and what got me interested

in this group was a fascinating paper I

read some time ago by two American

psychologists called

Steven cesie and Jeffrey Leica and cesie

and Leica back in the 1980s fresh out of

grad school they visited Brandy Wine

Raceway a horse racing venue in Delaware

and they interviewed 30 Avid racetrack

patrons men they were all men they went

to the racetrack every day of their

working lives they didn't make their

money from gambling it was just fun but

they were absolutely obsessed with it

they would go to the racetrack and cesi

and Leica found that they fell into two

distinct groups 14 of them were just

incredibly good at forecasting the odds

the final odds that would be offered on

the horses just prior to the race which

is a pretty good Guide to the

probability of the horse actually

winning and the other 16 were no better

really than the average

punter so over the course of four years

talking to these guys studying them

interviewing them cesi and Leica figured

out that the best way to model what the

expert gamblers were doing when they

were thinking about predicting the

horse's chance of winning the

race was to model it as a complex linear

equation consisting of seven variables

Each of which related to the hores

performance in previous races like its

average speed its uh average uh

finishing position and so on but of

course these expert gamblers they didn't

know anything about linear aggression

they'd never heard of statistical

modeling they were doing it all

unconsciously in their heads they okay

they knew what information to pay

attention to they would gather the

information consciously but then when it

came to mulling it around in their heads

they had kind of just

literally think about it somehow they

didn't know what they were doing but

then out of nowhere a number would pop

into their heads and that number was

always remarkably close to the horse's

actual chance of winning the race and

it's that that I call risk intelligence

it's that ability to gather information

from a wide variety of sources mul it

over in your head and come out with an

estimate a probability

estimate Now by now I hope you're all

wondering what your risk intelligence is

like and I've created an online test

where you can find out it's free and

anyone can take it you just go to

www. projection point.com or just Google

risk intelligence you'll get it and the

test

is what it asks you to do it consists of

50 statements some true some

false and your task is to say How likely

it is that you think each statement is

true and to express that as a

percentage what we're doing here is we

are

using percentages to express our own

degree of certainty or

uncertainty so if you think that the

sentence is definitely false you'll give

it a 0% chance of being true that means

you're completely certain that it's

false on the other hand if you're

completely certain that the statement is

true you'll express that by giving it a

100%

chance if you have absolutely no idea is

it true or false you express that by

giving it a 50% chance it's 50/50 you've

got no idea you might as well toss a

coin but if you've got a hunch that it's

true it's probably true but you're not

absolutely sure you would Express that

by giving it a 60% chance a 70% chance

80 or 90 depending on how sure you are

and if you think it's probably false but

you're not entirely sure you express

that by saying it's 40 30 20 10% again

depending depending on how sure you

are so when you've done the test the

website figures out a number between

zero and 100 which is your risk

intelligence score your RQ your risk

intelligence quotient and just as IQ is

a measure of your general intelligence

RQ is a measure of your risk

intelligence and the interesting thing

about this test the unusual thing about

it is that you can do quite well even if

you don't know much and that's because

this test is it's not measuring your

knowledge it's measuring your self-

knowledge if you like it's measuring

your ability to know how much you know

and to judge accurately your own degree

of certainty or uncertainty in each

situation and that's why I think some of

my brightest students often find it more

challenging than some of my more average

students because the brightest ones have

been rewarded all their lives for

knowing stuff and praise for knowing a

bunch of facts and as a result they've

often become overconfident and this test

punishes

overconfidence it also punishes

underconfidence the point is not to be

you know ridiculously humble either the

point is having the right amount of

confidence in each situation depending

on how much you know or don't know in

each

situation so how can all this help us

make better

decisions some

people even if they find the subject

interesting they say well look how how

can this help me actually make better

quality decisions and I think the puzzle

for these people arises because we're

all used to knowing how to make use of

categorical information if someone says

to you it's going to rain tomorrow

there's no brainer you take your

umbrella but if someone says to you look

there's a 60% chance that it will rain

tomorrow what do you do do you take your

umbrella or not we're not really taught

how to make decisions on the basis of

Uncertain

information so I want to finish off by

just describing three simple ways in

which you can use probabilities when

making your

decisions the first way is simply to set

a

threshold so for example you might say

well I'm only going to ask this person

out on a date if I think that there's a

60% chance that they will say yes and

the great thing about this method is of

course that everybody can set their

thresholds differently at different

levels depending on

how desperate you are to go on a

date and and how much you hate being

rejected the second way to make

decisions on the basis of probabilities

is BET sizing and this

means betting an amount that is

proportional to your confidence so for

example you could decide to buy more or

less shares in various companies

depending on how strongly you believe

that each company was going to do well

but this of course depends crucially on

having an appropriate degree of

confidence overconfidence is going to be

fatal here so again you can only use

this method of decision-making if you've

got good risk

intelligence the third and most complex

way of using probabilities when you make

decisions is to use the concept of

expected value and expect value is an

abstract concept it doesn't refer to any

actual win or loss it refers to the

average amount that you would win or

lose if you place the same bet an

infinite number of times but this

ethereal abstract figure takes on an

almost

physical nature for the expert gamblers

that that I've interviewed when they

look at a roulette table or a blackjack

game an ex the expert Camas don't

see the maximum amount that they could

win or lose they're not hypnotized by

this like the rest of us they just see

the average amount that they could win

or lose per bet the expected value

that's what really is at the Forefront

of their mind and by placing their

decisions as it were in the con in by

thinking about this decision in this way

in the terms of expected value they

Place their decisions in the context of

a much longer time

Horizon

so they kind of rise above the

moment

now one of the uh in the long run as

Keen said we're all dead so even expert

gamblers are mortal and they have finite

number of decisions but you know despite

what the guy said in the video that we

just watched before we broke about the

importance of you know remembering we're

mortal that does have a disadvantage it

tends to make people Reckless if you

think this is the last race the last

roll of the dice you might bet

everything on it the expert gamblers in

a sense by seeing things in a much

longer time Horizon almost act as if

they were Immortal and because of that

they kind of gain a certain coolness

about their decision-making they can

take it or leave it as one expert

Gambler told me there's always another

race I don't have to bet my bank rooll

on this Thro of the die or this horse

race now I can come back tomorrow and

it's when knowing no when not to bet

that is really one of the crucial things

that sets the experts apart from the

Leisure gamblers the problem

gamblers now of course luck can always

go against you there's no guarantee that

even if you have excellent risk

intelligence and even if you use these

decision-making methods that you'll

always win but if that thought upsets

you then you haven't yet come to terms

with the irreducibility of

chance as Nick pulovski says the

character played by Clint Eastwood in

the rookie if you want a

guarantee buy a

toaster so I want to end this lecture by

saying by urging you to make your peace

with

chance just accept that you can't

control her or cool her accept that she

doesn't care about you and she never

will but don't

despair as Damon ran once said the race

is not always to the Swift nor the

battle always to the

strong but that's the way to

bet thank

[Applause]

you